A company can claim a refund of Countervailing Duty (CVD) and Special Additional Duty (SAD) paid on imported capital goods after the implementation of the Goods and Services Tax (GST) in India: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT),

New Delhi, concerns an appeal by M/s Hindustan Equipments Private Limited ("Hindustan"), acknowledged the Commissioner’s ruling but ultimately found in favor of Hindustan910. The Tribunal determined that Hindustan’s payment of CVD and SAD after the July 1, 2017, implementation of GST made them ineligible to claim credit under the new tax regime.

Background: Between 2010 and 2013, Hindustan obtained four Export Promotion Capital Goods (EPCG) authorizations, which allowed it to import capital goods duty-free. Hindustan imported capital goods under these authorizations but was unable to fulfill the export obligations associated with them. As a result, Hindustan paid the customs duty, including Countervailing Duty (CVD) and Special Additional Duty (SAD), along with applicable interest, in accordance with Customs Notification No. 16/2015 dated April 1, 2015. The total amount paid was Rs. 49,90,979.

Hindustan's Position: Hindustan argued that it was entitled to CENVAT credit on the CVD and SAD components it paid on the imported goods under the CENVAT Credit Rules, 2004 (CCR). Hindustan used the imported goods in the manufacture of dutiable goods after paying the applicable duties. However, Hindustan was unable to claim credit for the CVD and SAD paid because the CCR ceased to exist upon the implementation of the Goods and Services Tax (GST) regime on July 1, 2017.

Hindustan filed two refund claims seeking a cash refund of the CVD/SAD paid, relying on Section 142(3) of the Central Goods and Services Tax Act, 2017 (CGST Act). This section addresses miscellaneous transitional provisions for refunds of CENVAT credit, duty, tax, interest, or any other amount paid under the previous law. Hindustan's refund claims were denied.

Commissioner's Decision: The Commissioner of CGST & Central Excise, Indore, in upholding the denial of Hindustan's refund claims, stated that Hindustan did not meet the requirements for a refund under Section 142 of the CGST Act. The Commissioner asserted that Section 142(3) only covers refund claims that fall under Rule 5 of the CCR, which was not applicable in Hindustan's case therefore was ineligible for a refund.

Summary of the Judgment: The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, concerns an appeal by M/s Hindustan Equipments Private Limited ("Hindustan"), acknowledged the Commissioner’s ruling but ultimately found in favor of Hindustan910. The Tribunal determined that Hindustan’s payment of CVD and SAD after the July 1, 2017, implementation of GST made them ineligible to claim credit under the new tax regime1011. The Tribunal cited the “Doctrine of Necessity” and relied on Section 142(3) and (6) of the CGST Act to justify their decision to grant Hindustan a cash refund of the CVD and SAD paid.

The Tribunal drew its attention to the ‘Doctrine of Necessity’ which the Hon’ble Madras High Court discussed in details in the case of M/s Ganges International Pvt Ltd., M/s SRC Projects Pvt Ltd., M/s Supreme Petrochemicals Ltd., vs. The Assistant Commissioner of GST & Central Excise, Puducheery, the Union of India, The Assistant Commissioner of Central Taxes & Central Excise, Triuvottiyur Division3, in a similar context of refund, and while citing the Hon’ble Madras High Court the Tribunal quoted

“When the GST regime has come into effect from 01.07.2017, under which the erstwhile tax legislation governing the field hitherto since has been replealed or extinguished, necessarily the Legislature had to bring transitional provisions which they have done so. Accordingly, Section 140 to 142 have been brought under GST Act wherein Section 140 has been provided as ‘Transitional arrangements for input tax credit’. For the purpose of claiming the input tax credit under the GST regime also which otherwise accrued under the erstwhile regime on 30.06.2017 mainly this transitional provisions under Section 140 has been made, where, as has been quoted herein above, the registered person is entitled to take Cenvat Credit in his electronic credit ledger carried forward in the return relating to the period ending with the day immediately proceeding the appointed day.

Xxxxxxxxxxxxxxxx

Merely because, the transitional provision has come into effect from 01.07.2017 and under Section 140(1) of the Act, the persons like the petitioners can make a claim only in respect of the credit which is already accrued as on 30.06.2017 and these credit had come into the account of the petitioners only subsequently, for which, claim under Section 140(1) could not have been made, the chance of making such an application to seek the refund or otherwise of such a credit which has subsequently accrued in the account of the petitioners, cannot be denied- this Court feels that, in these kind of special situations, for which, the provision if not Section 142(3), no other eligible provision is available. Therefore, this Court feels that, since it is a dire necessity, as these kind of situation necessarily to be met with by the Legislation, for which, these transitional provision has been brought in in the Statute Book, there can be no impediment for invoking Section 142(3) of the Act by invoking the "Doctrine of Necessity".”

The Tribunal further supported its decision by referencing similar cases adjudicated by the CESTAT and other judicial authorities, including:
M/s Mithila Drugs Pvt Ltd. vs. Commissioner, Central Goods and Service Tax (Final Order Nos. 50157-50159/2022): This case involved a refund of CVD and SAD paid during the GST regime for imports made before June 30, 2017, under the advance authorization scheme. The Tribunal found that the refund was allowable as credit was unavailable under the GST regime but had been available under the previous Central Excise regime.

Flexi Caps Polymers Pvt ltd. (2021 (9) TMI 917 (CESTAT-NEW DELHI)): In this case, the Tribunal held that the appellant was entitled to a cash refund under Section 142 of the GST Act for service tax paid under the reverse charge mechanism after June 30, 2017, for transactions prior to July 1, 201713. The Tribunal emphasized that the appellant had been eligible for CENVAT credit under the previous CENVAT Credit Rules.

New Age Laminators Pvt Ltd. vs. CCE & ST, Alwar (Final Order Nos. 50256-50257/2022): In this instance, the Tribunal upheld the cash refund of CVD and SAD, citing Section 142(3) and (6) of the GST Act, as the credit was not available to the appellant under the GST framework.

Flexi Caps and Polymers Pvt Ltd. (Excise Appeal No. 50114 of 2020): The Tribunal emphasized that the appellant was entitled to a cash refund of CVD/SAD paid on imported inputs since the previous Central Excise Act, 1944, had been replaced by the GST Act, 201719. The Tribunal highlighted Section 142 of the GST Act as the mechanism for refunding such unutilized credits to the assessee.

ITCO Industries Limited vs. Commissioner of GST & Central Excise, Salem (Final Order No. 40259-40260/2022): This case reinforced the principle of a cash refund under Section 142(3) of the GST Act for CVD and SAD when a taxpayer was entitled to CENVAT credit but unable to avail it.

Further the Tribunal observed that

“7. Apparently, the said Cenvat Credit could not be availed any more due to the erstwhile law i.e. Central Excise Act, 1944 being taken over by New GST Act, 2017. Perusal thereof shows that the Act contains a provision to take care of such unutilized credits of the assessee to be refunded to them in cash. The relevant provision is Section 142 of GST Act, with sub-section (3) thereof..”

The Tribunal held that appellant is entitled to refund in terms of the provisions of section 142 (3) and (6) of GST Act and allowed Hindustan's appeal by setting aside the impugned order, and directed the relevant authority to grant the refund of CVD and SAD, providing relief as per the law.

The judgment underscores the importance of Section 142 of the CGST Act in ensuring taxpayers do not lose out on legitimate credit entitlements during the transition from the previous tax regime to the GST regime.

EXCISE APPEAL NO. 55786 OF 2023
[Arising out of Order-in-Appeal No. IND-EXCUS-000-APP-110 to 112/2023-24 dated 21.07.2023 passed by the Commissioner (Appeals) CGST, Customs & Central Excise, Indore (MP)]
CORAM: HON'BLE MR. RAJEEV TANDON, MEMBER ( TECHNICAL)
FINAL ORDER NO. 55899 /2024
Date of Hearing : 03/06/2024
Date of Decision : 06/06/2024